Can the Model Tenancy Act move the needle on India’s rental problem?
Rental housing is a complex issue in India — the rent, the terms of the agreement, the obligations of the landlord, the rules which the tenants should abide by, the amount to be proffered as the security deposit, and so forth differ vastly from region to region. The difference is at its sharpest when it comes to a comparison between metros such as Bengaluru, Mumbai, Gurugram, Delhi, Chennai, Pune, Kochi, and the rest of the country.
With an intention of reforming the rental housing sector, the Central Government of India came out with the Model Tenancy Act (MTA) in June 2021. It aims to promote rental housing and bridge the trust deficit between tenants and landlords. However, the Act is not binding on the states and Union Territories (UTs) as land is a state subject and does not fall under the Union list. Moreover, it was made clear that MTA would be applicable prospectively and would not affect existing tenancies.
The MTA has sound provisions and can be a game-changer for India’s rental housing market. It is a balanced piece of legislation that safeguards the interests of both parties — landlords and tenants — in equal measure. With the potential to unlock vacant houses for renting purposes and promote private-sector participation in addressing the shortage, it may well be the answer to the country’s housing woes.
Important aspects of the Act
MTA seeks to establish a rent authority in each state and UT and mandates a written rent agreement and registration of the same with the said authority. It ensures that tenants cannot be evicted during the tenancy agreement period unless otherwise agreed to in writing by both parties. Furthermore, no property manager can withhold any essential supplies from the tenant under any circumstances.
Tenants have long endured the headache of high rental deposits, particularly in cities such as Bengaluru, Chennai, and Mumbai, where security deposits amount to almost a year’s rent. MTA puts an end to this trend by capping the security deposits to two months for residential properties and six months for commercial properties. Besides, at the time of vacating the property, the law mandates the landlords to return the entire security amount within a month — which is good news for tenants.
What’s in it for the landlords?
While the above provisions safeguard tenants, landlords are also protected by the Act. For instance, in case of non-vacancy, the tenant will be liable to pay compensation of double the monthly rent for two months and four times the monthly rent thereafter.
This provision alone can unlock several vacant properties, as the Rent Control Acts of various states are largely pro-tenant, thus discouraging owners from putting their property on the rental market. “What if the tenant does not vacate the premises” has been a valid question among homeowners, particularly NRIs, who would rather leave their property unoccupied than deal with the stress of a tenant not vacating the premises. MTA also addresses landlords’ concerns related to delays in rent payment, damage to property, and loss of assets.
If adopted uniformly across the country, the Act can usher in much-needed changes in India’s rental housing market and make it more structured and organised. It can also lead to increased transparency and trust between landlords and tenants, thus giving a boost to the rental housing segment.